Focus on eMarketing and Electronic Software Distribution

If You Predict It, You Own It

As I've written about previously, I'm currently the Project Manager
for the Sun Machine Learning Engine (SMILE) project, based on
predictive analytics (PA) technology we're developing in-house. While I
have a lot of experience building and managing complex web systems such
as this, I haven't worked with PA technology before. I set out to
learn more about it, for two reasons:

Since I'm the PM for this project, it's generally a good idea to know what I'm doing and talking about!

ROI is very important, both
for this project and for ensuring the ongoing application of PA
technology in general at Sun. This matters, of course, to
Sun's management, and as you might imagine, it can't hurt to convey
these benefits to
our soon-to-be new owners as well.

So, I set out to learn more about PA, what it is, and what benefits
it offers. In this post, I want to share and consolidate some of my
findings -- hopefully this will be helpful to others who are
considering or starting similar projects.

Now, before I get much further, credit where credit is due. The
title of this post, "If You Predict It, You Own It", is a tag line
I like, taken directly from Eric Siegel's Prediction Impact
site. I recommend this site for an intro to the subject, as it
offers many helpful articles as well as resources, such as
the Predictive Analytics World conferences and training programs.

So what is PA?

Wikipedia has a good article on PA, starting with a concise summary definition: "Predictive analytics encompasses a variety of techniques from statistics and data mining that analyze current and historical data to make predictions about future events." The Applications section offers an excellent overview of the many uses for this technology. Currently, we're using SMILE primarily for Cross-sell and Direct Marketing. The last part of the article focuses on Statistical Techniques, an area I'll leave to the statisticians and engineers building SMILE.

That will give you a good,
quick intro to PA. What about the results? What's
out there we can leverage to help sell such projects within our
organizations? I did some of my own research into this and was
also fortunate to have assistance from Sun's Digital Libraries
&
Research staff in locating a few additional publications. Here are some representative quotes/stats/images that make strong
"sound bytes" in support of PA!

"Marketers have long relied on analytical techniques to identify
and reduce customer churn. For instance, segmentation models help
marketers to better profile customers and understand behavior, while
cross-sell and upsell modeling deepens relationships and creates
barriers to exit."

"Marketers who target all types of respondents, not just the
positives, risk wasting valuable resources on indifferent customers or at
worst even triggering churn. This is especially critical in this
climate of pressure upon marketing spend."

"Telenor found that by only targeting
persuadables, it was able to reduce overall churn by 1.8%. A more
telling statistic: These improvements were driven by only targeting 60%
of the potential churners. The benefits of targeting smaller groups is
clear — cost savings achieved from fewer contacts by
telemarketing and lowering of customer fatigue through selective contacts."

"The combination of increased retention rates and lower cost means
Telenor will realize an 11-fold increase in uplift campaign ROI when compared with existing programs."

"While
the Internet and new
technologies aren’t crystal balls, the
sheer wealth of
information that can be gleaned
about today’s
customers—and then applied toward
anticipated future behaviors—is staggering.
Failure to take this information into account is like leaving money on
the table, or worse. You could simply hand it over to your
competitors....Today’s smart companies use data, and the
insight gained from it, to predict customer behavior."

"In one example, American Airlines used
predictive analytics to better
understand the relationship between various
customer segments and differential flight
patterns. They achieved sky-high ROI
results of nearly 1,200 percent in a period of two months."

"IDC report studied
dozens of
companies and hundreds of predictive
analytics projects. It found that the median ROI for
the projects that incorporated predictive
technologies was 145 percent, compared with a median
ROI of 89 percent for those projects
that employed only traditional analytics."

About

I helped design, build, and manage download systems at Sun for many years. Recently I've focused on web eMarketing systems. Occasionally, I write about other interests, such as holography and jazz guitar. Follow me on Twitter: http://twitter.com/garyzel